CHICAGO — The Chicago Park District will enter the market as soon as Thursday with a roughly $31 million refunding, boosted by an upgrade to just below triple-A in recognition of its improved balance sheet from the cash windfall it received from the leasing of its downtown parking garages last year.
The deal includes four series of general obligation limited and unlimited tax refunding bonds for savings. Morgan Stanley is the underwriter. Fitch Ratings upgraded the district’s rating on a total of $800 million of GOs one notch to AA-plus, while Moody’s Investors Service affirmed its Aa3 rating and Standard & Poor’s affirmed its AA.
The district won the upgrade as a result of its use of cash from the $563 million lease Chicago and the district entered into last year on four downtown underground parking garages — including the Grant Park garages owned by the district and the Millennium Park garage owned by the city.
The city and district leased the garages that run between Michigan Avenue and Lake Michigan and include 9,178 parking spaces for 99 years to the highest bidder — Morgan Stanley Investment Management. The city used a good chunk of the deal to retire limited-tax bonds that financed construction of the Millennium Park garage.
The district used $70 million to retire its own garage-related debt and set aside $121 million to establish a long-term income reserve that will eliminate the need for cash flow borrowing. Interest earnings of at least $5 million will go to replace the annual revenues previously generated by the garages.
Another $122 million from the deal went into a capital improvement fund for use in lieu of debt issuance. The lease also shifts the burden of financing future improvements of the garages to Morgan Stanley.
“They used a piece of the money to retire some debt, are using some to fund a portion of their capital program so they can reduce the amount of debt they issue, and kept a piece for a reserve, which provides a cushion so that their financial position is quite improved,” said Fitch analyst Joseph O’Keefe.
While the lease deal provided a significant boost to the district, its balance sheet had been on the mend in recent years after struggling with negative fund balances earlier in the decade after the district shifted its accounting of property tax collections to bring it in line with generally accepted accounting principles.
The district saw a $25 million general fund surplus in 2005 due to strong revenue growth and a more narrow $1 million balance in 2006. Preliminary 2007 results show a surplus of $10 million due largely to spending restraints. The district owns and manages nearly 7,600 acres of park land and 26 miles of shoreline. The district’s property tax base grew at an average annual rate of 15.3% between 2002 and 2005 to $283.1 billion.
“When the unrestricted balance from the newly created long-term income reserve fund is included, financial flexibility increases dramatically, with unreserved balances exceeding 50% of spending,” Fitch wrote.
"We were very pleased with the upgrade and are going to keep working to get additional ones," said the district's chief financial officer Stephen Hughes.
Though the district has traditionally insured its bonds in the past, officials opted to forgo triple-A insurance after reviewing the costs of several bids. "It was just too expensive and didn't make sense given our upgrade," Hughes said.
The district has no near-term plans to issue new money for routine capital expenses. About 53% of the district’s $290 million five-year capital improvement program relies on garage lease proceeds. The remainder will come from future borrowing.
Officials are planning a $25 million issue later this year to finance projects needed under the Americans With Disabilities Act and an $85 million issue also this year to finance the addition of new slips at its nine harbors along the shore of Lake Michigan. The district has a waiting list of more than 500 for slips. The district also last year began a financial review of whether to add as many as three new harbors in the future.